Providence drowns while Brown thrives

Municipalities across the country are looking to local non-profits to pay for their share of community services. These payments, known as PILOTs, or “payments in lieu of taxes,” are voluntarily contributed by private schools, hospitals and other non-profits as an alternative to paying property taxes. As cities come under more fiscal stress, this will be a growing trend.

The mayor of Providence, Rhode Island, Angel Taveras, is in a wrestling match with Brown University over increasing the school’s annual payments to the city. Taveras is angling to get a bigger sum from Brown, but if he is unsuccessful, then his only option to balance his city’s budget would be to get public unions to agree to concessions. Others, including Robert Flanders, the receiver of nearby Central Falls, believe that Providence’s only option is bankruptcy:

“I don’t see how [Providence] can get out of it without going there,” said Flanders, a former state Supreme Court justice and a partner at Hinckley, Allen & Snyder LLP in Providence. He put Central Falls into bankruptcy in August and has since torn up contracts with city workers and cut pension benefits.

The situation Flanders faced in Central Falls is significantly different from that of Providence. Although Central Falls has some churches and small non-profits in the community, its only major institution, the Wyatt Correctional Facility, refuses to pay the city a monthly $25,000 “impact fee” until its bondholders are paid off. On the other hand, Taveras is hamstrung by a 2003 agreement that requires small payments from the local universities. The best report on PILOTS, from the Lincoln Institute (page 25), describes the arrangement:

In 2003 the City of Providence reached an agreement with its four private colleges for payments in lieu of property taxes totaling $48 million over 20 years. At the time Mayor David Cicilline argued, “With total annual budgets of $750 million, combined endowments of $2 billion, and over 25,000 students – the vast majority of them from outside of Providence – these institutions are thriving in our city. Yet for all the annual police, fire, public-works, and other services these enormous institutions consume, they pay virtually no compensation to the city”

The $2.4 million Providence receives annually from its four private colleges is pretty small – less than 1 percent of the city’s budget. Consider how much revenue the city would have received last year if it collected full property taxes on Brown instead of the previously agreed upon PILOTs. According to its annual report (page 7), Brown had a 2011 university plant value of $897 million, or about 7 percent of the accessed property in the city. If property taxes were levied on the full value of Brown’s 241 buildings, then the university’s payment to the city would be about $19 million per year. Coincidentally, this equals almost the exact amount of the current Providence deficit.

Last year, the New York Times looked at the economic rationale for exempting non-profit groups from local taxes:

“We’re having to look at the public services nonprofits use and how we can adequately cover those costs,” said Matt Greller, executive director of the Indiana Association of Cities and Towns. “We can’t give them away for free any longer.”

Nonprofit groups say the moves to wring revenue out of them are shortsighted and will produce cutbacks in critical services that governments rely on them to provide, like mental health and emergency foster care services.

If charging non-profits for a share of public services causes soup kitchens and Salvation Army outposts to close, it might be unwise to levy heavy payments on these groups. But many non-profits, like Brown, have substantial resources and serve a very selective group of students, many of whom come from outside of the city.

This is not a problem that only afflicts Providence. The Rochester Post-Bulletin reported yesterday that the Mayo Clinic would soon be raising $200 million in tax-exempt municipal revenue bonds for a proton beam therapy center. Although the clinic accepts charity cases, will the project serve the public good or just those who have adequate insurance to gain access? The dividing line between public good and private assets has been blurred over the decades and is now causing a lot of stress for local governments. Busted Harrisburg, Pennsylvania has non-profits that own 40 percent of the property there. As is the case in Providence, someone has to pay for public services. Who can the city turn to if not non-profits?